Financial Modeling Walkthrough with Sturppy
Whether you want to build a sustainable business, explore different funding options, or just avoid going bankrupt; creating a financial model is nearly indispensable. As a founder, you already have a variety of responsibilities, but building a financial model helps eliminate risk by quantifying and validating your vision and assumptions. Think of it this way, if you want to get a bird’s eye view on the viability of your own company, you need to start financial planning.
Most financial models are built in Excel where it’s easy to run into circular dependencies, syntax errors, and long, avoidable formulas. Check out our recent article on, 7 Common Financial Modeling Mistakes for Startups, if you’re interested in learning more about common financial modeling mistakes. To avoid these pitfalls entirely, let me introduce you to Sturppy’s financial modeling platform.
After signing up for a free account, Sturppy prompts you with a series of questions to generate your financial model. First, start by selecting the answer that describes your familiarity with financial modeling. We’ll select no experience to show how simple it is to create a model.
Next we’ll need to select the business model. There are three options:
Each business model will tailor the platform to your specific needs, also each selection is trained on data from the respective types of companies in order to make accurate predictions.
If you can’t find your business model here, we are always adding new ones, you can easily contact us with the in-app chat and we will help you choose the best one for you or add it!
For the sake of this tutorial, let’s imagine a scenario where we just founded a new SaaS startup that offers a monthly subscription for its productivity/note taking software. Let’s call it Not A SaaS and say that we’re starting with $10,000 in starting capital and have two plans: starter and pro. The starter plan will be $19/month and the pro plan will be $40/month. Lastly, we’ll assume that 10% of our leads convert and 5% of our users churn, meaning that we retain 95% of our users. Even though these are merely assumptions, this can still be helpful for understanding profitability despite real data.
Moving forward, we’ll enter our monthly marketing budget of $1000, a CPC of $2 and organic monthly traffic of about 500 visitors. CPC stands for cost-per-click and mostly relates to paid traffic, such as Google Ads and Facebook Ads. When running ads on these types of platforms, each click your ad receives costs a certain amount depending on the level of competition.
On the other hand, your organic monthly traffic refers to how many viewers visit your website gets without clicking on a paid ad. The best sources of organic traffic come from high search engine rankings and engaging social media campaigns. You will be able to set this later.
As for our conversions, let’s stick with a 10% conversion rate and 5% churn rate. You’ll notice the graph on the right will update as you enter your rates. Let’s quickly break this down. On the previous step we entered a budget of $1000 with a $2 CPC meaning we get 500 visitors from paid traffic. Add the 500 visitors from organic traffic and we get 1,000 total visitors each month.
Now that we’ve entered a conversion rate, we can see on the graph that we’ll get 50 new subscribers each month. However, given the 5% churn rate, Sturppy already shows us a valid concern. You can visually see how quickly churn can catch-up with user growth. By month twelve, we’d still get 50 new customers but 83 existing users would leave.
Finally, we’ll enter our subscriptions, their prices, and the percentage of our user base subscribed to each plan. To keep things simple, we also skipped over our COGS and expenses. COGS refers to the cost of goods sold such as manufacturing or labor costs. For our scenario, our COGS would most likely include our server costs, any SaaS subscriptions, and content writers.
On the other hand, expenses are costs such as rent or insurance that must be paid and not associated with your manufacturing costs. Don’t worry, we’ll add this information later to demonstrate how Sturppy updates dynamically.
Dashboard and Features
Once onboarding is complete, you can freely explore the Sturppy platform!
Let’s start with the homepage where you’ll see revenue and expenses based on the data we inputted as well as the latest news and tips from the Sturppy team. Since we only entered a monthly marketing budget of $1,000, you can see our costs under the red line are constant. On the other hand our revenue is predicted based on the paid and organic traffic, the conversion rate, and the subscriptions we entered.
Select the tab below the homepage and we can see our user growth projections. Click on the “Acquisition” panel to edit the amount of paid and organic traffic. There, you can view more detailed charts between your traffic channels. Feel free to play around here and enter more details about traffic growth to get more accurate results. For example, we entered 10% monthly growth for organic traffic and kept our paid traffic constant, resulting in the bottom-right chart below.
Next, the expenses tab includes our COGS, team costs, capital expenditures, and operating expenses. For our COGS we’ll include a monthly server cost of $30 and email marketing software at $49 a month plus some other cost associated to the tech infrastructure.
As for the team, we’ll imagine we have one lead developer that we’ll pay $3,300 a month. Feel free to add the last two yourself.
Capital expenditures are one time purchases like computers and desks to launch your startup and operating expenses can be added as a percentage of net revenue.
Let’s visit our projections, where we can see our predicted margins and expenses over time. We can also instantly view our income statement, balance sheet, and cash flow statement all of which can be exported as Excel files.
Finally, let’s wrap up with the final valuation of our startup. Given the inputs, our startup is calculated to be worth $199,126 based on a one year projection. Using Sturppy’s AI powered analysis we can also determine the feasibility of our assumptions. In our case, our assumptions are “slightly optimistic”. Observing the radar chart proves that our monthly recurring revenue (MRR) and monthly active users (MAU) are much higher than their respective medians. Give it a try to see how presumptive your model may be.
This was just a small sample of what you can do with Sturppy. Sign up to get started and explore the full suite of tools. Hopefully the platform can save you time on your next financial model or, if you’re new to financial modeling, avoid the time it takes to learn Excel altogether.